Would You Buy a Used Car From This Man?

02/12/12

A recent unpublished decision by BankuptcyJudge Mann of the Southern District of California is a good quick resource for briefingdischargeability actions in her courtroom. In Whited v. Galindo, 2012 WL345942 (Feb. 1, 2012), S.D. Cal. Adv. No. 10-90473), the end result was anondischargeable judgment for $1,648.29 in damages against the president of aused car dealer.  It is one of thosecases that make you happy that a lawyer was found willing to handle the matter,and also proud of a judicial system that can devote this much time and care to adispute like this one.

The plaintiff Jared Whited was a 20year old sailor who purchased a Hyundai Sonata from Southbay Preowned, a cardealership which closed shortly thereafter. Defendant Antonio Galindo was the owner and president of Southbay, whowas a chapter 7 debtor as the result of having guaranteed financingarrangements for Southbay.  Whitedcontracted to purchase the 2006 Sonata for a total price of $13,600.  The Court found that Galindo made several affirmativemisrepresentations in connection with the sale of the car, including that financinghad been approved when it had not.  Afterthe financing fell through and Southbay was obliged to keep the finance contractitself, Galindo caused the car to be repossessed and resold at a smallprofit.  The damages awarded consisted ofthat profit ($148.29) and Whited's down payment ($1,500.00). 

As it seems must be the case formost judicial acts by bankruptcy courts these days, the decision begins with adiscussion of whether a bankruptcy court has jurisdiction to enter a moneyjudgment in a dischargeability action in light of the Supreme Court's decisionin Sternv. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 2601–02 (2011).  The Court raised the jurisdictional issue suasponte, but noted that the parties had alleged and admitted jurisdiction intheir pleadings.  The Court also citedpre-Stern authority to the effectthat money judgments can be entered in dischargeability matters.  This issue is going to come up again in othercases and the ultimate answer is not clear to me.  In reGalindo had been long before closed as a no-asset case.  Does a bankruptcy court have jurisdiction,even exclusive jurisdiction, to enter a money judgment which will have no effect on abankruptcy estate?  I believe so,because the judgment is a determination of the scope of the discharge,a matter historically within the province of the bankruptcy courts.  

The opinion contains a gooddiscussion of the basic authority on the elements of section 523(a)(2) fraud nondischargeablity,including the sometimes unfortunately neglected doctrine of concealmentas a species of "actual fraud" within the meaning of thestatute.  In violation of regulationswhich apply to used car dealers, Galindo had not disclosed that the Sonata wasformerly a rental vehicle.  The opinionstates that "[n]ondisclosure of information that Galindo has a duty todisclose may also constitute a false representation under § 523(a)(2)(A)."  The Court also concluded that"justifiable reliance . . . need not be further proven when a party with aduty to disclose a material fact fails to do so." 

If you are dissatisfied with the$1,648.29 result, remember that attorney fees are yet to be awarded in the Whited case.  The opinion states that "an award ofattorney's fees, even if larger than Whited's personal loss, furthers thepublic goal of deterring unfair or deceptive business practices. See Hayward v. Ventura Volvo, 108 Cal.App.4th 509, 511–13 (Cal.App.2d Dist.2003) (affirming a $98,000 attorney's feeaward in auto dealer CLRA violation case where compensatory damages were$14,812)."  I'll post a comment laterto report on the anticipated attorney fee award. 
Copyright Dean T. Kirby 2007. All rights reserved.

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